This is Harry Fine's personal blog containing his comments on current Ontario legal issues and the current state, complexities and absurdities of landlord and tenant law in Ontario. Harry is a paralegal with over 15 years practicing landlord and tenant, Small Claims and Human Rights law and is a former member of the Landlord and Tenant Board. The comments in this blog do not constitute legal advice.

Tuesday, December 6, 2011

Liberals Start New Legislative Session by Dumping on Residential Landlords Again

In the summer of 2011 Minister Bartolucci reacted in mock horror to the announcement of the 3.1% provincial rent increase
for 2012, saying his government would re-vamp the system if the Liberals were re-elected.
And so they have! Today a Bill was introduced at Queen's Park which will cap the guideline at a maximum of 2.5%, and will create a floor of 1%.

I'm confused by this comment at the Ministry web site when speaking about the Bill:

Tenants would
benefit from greater certainty that would ensure affordable and stable rents so
they have safe and affordable housing. For landlords, this would ensure a fair
return so they can properly maintain rental properties.

So if inflation is set at 7%, and the guideline is capped out at 2.5%, that would ensure a fair return to the landlord? How does that math work? The methodology will remain the same; Minister Wynne said today that using the CPI is fair and transparent. So it seems that the government believes that the mathematical calculation is fair....that is until the resultant increase would be greater than 2.5%. How then does the landlord "properly maintain their rental housing".

But let’s look at the facts around the 2012 guideline that was set at 3.1%. Prior to the
Liberals enacting the Residential Tenancies Act in 2007, the annual
guideline was based on a 3 year rolling average of eight building operating
costs. This blending of 3 years was used to smooth out the bumps of any
one given year that may have been atypical. It was Minister Bartolucci’s
government that changed it to the current system which looks at only the most
recent year of the Ontario Consumer Price Index.

The
rent
guideline years of 2011 and 2012 were an aberration, and must be looked
at
together and in context. This larger-than-normal increase for the 2012
calendar year exists because of the effect of the HST which came into
force July 1st, 2010, affecting the “sample year” that
was used to determine the 2012 guideline. Landlords collect no HST on
residential rents, and therefore there are no input tax credits
available to them. Nor can they pass on their cost of HST, as the rents
they charge are strictly controlled.
Every cent of HST landlords paid was an added cost to them. So adding
the
natural true inflationary forces with the new HST, you have a 3.1%
increase for
2012, which I concede is more than 4 times greater than the .7% allowed
for
2011.

But let’s go
back and average the aberrations of 2011 and 2012, using a methodology closer
to that used pre-ResidentialTenancies Act. Adding the 2011
and 2012 allowable percentages, we come up with 3.8% over two years, or 1.9%
annualized. If you look back all the way to 1990, there have only been 3
years that were less than the 1.9% (1.5% in 2005, 1.4% in 2008 and 1.8% in
2009). Interestingly the last two were under the current Liberal
government. So how is 1.9% averaged over two years unfair to tenants and
a windfall to landlords?

The Liberals were happy to take credit when the
increase was .7%, pandering to their core constituency. But they are
aghast when the low number from 2011 caught up with them in 2012. They
want to take credit when their formula produces numbers that look good on them,
but disavow the formula when it produces a result fair to everyone.
Typical of the left, always picking winners and losers instead of allowing any
sort of market forces to prevail.